Younger Canadian investors, like millennials, should be thinking about growth, even as interest rates continue to climb. Of course, growth in the future isn’t as meaningful if rates are through the roof. However, rates won’t stay hot forever. Eventually, inflation will give central banks (like the Federal Reserve in the U.S. or the Bank of Canada here in Canada) permission to ease off on rate hikes and possibly consider cuts at some point in the future!
For now, higher rates seem here to stay, at least for the next year or so. Companies need to get serious about profitability. And though rates may seem bad for the market’s top growers, I think it could be a pretty big positive.
Why? Higher rates have been a wake-up call for companies that have been spending recklessly, with less consideration for the returns on invested capital (ROIC).
Indeed, promising growth way into the future is easy to do. Actually, having a game plan and steady cost controls in place is hard. With high rates, one must find the incentive to grow efficiently rather than throwing money at any hot trend. Undoubtedly, the rise of artificial intelligence (AI) has been a potential area of investment for firms looking to drive productivity while minimizing expenses.
This is not to say that robots are going to replace humans anytime soon. However, I think investors should take the rise of AI seriously rather than dismissing it as some sort of short-lived fad. Indeed, it’s not like cryptocurrencies, a novel asset that may not be able to be a cash cow for everyday companies.
Source: Getty Images
Shopify stock: A must-own for millennials and other young investors?
At this juncture, I view e-commerce firm Shopify (TSX:SHOP) as one Canadian firm that’s taking AI seriously. Of course, Shopify isn’t an AI pure-play by any stretch of the imagination. Still, AI could help it bolster growth while helping it enhance margins over time.
What’s one way that Shopify could use generative AI to grow?
New tools for merchants could give the company yet another edge over the peer group. As a digital merchant, you could build a site anywhere. However, they want to use Shopify for the rich tools and ease of use. With AI aboard, I think Shopify’s advantage over rivals is that much more pronounced.
Back in July, Shopify shed more light on AI initiatives moving forward. AI chatbots for merchants and other intriguing tools could really help drive Shopify stock’s relief rally to the next level.
Although Shopify stock’s rally seems to be running out of steam for the late summer, I think the recent dip is more than buyable for young investors who seek to beat the markets over the next decade and beyond. The stock’s latest 13.6% slip off 52-week highs is a gift in my books.
Does that mean Shopify stock can’t plunge violently going into year-end?
Of course not. Shopify stock is at risk of giving back much of the gains it enjoyed this year. As markets sour on growth plays like Shopify again, it’s the millennial group that should be ready, waiting, and willing to be a net buyer of the dip.
Bottom line
At the end of the day, Shopify is one of Canada’s most innovative companies, and with that, it deserves to trade at a hefty premium! At around 12 times price to sales, I don’t think the premium is all that large right now.
